Are Loan Origination Fees Necessary?

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Loan origination fees, also known as points, are not a necessary expense when obtaining a mortgage. These fees are a way for a lender or broker to make money from closing the loan. By shopping around, you can find the best rate and the lowest origination fees.

Pros of Origination Fees

Origination fees are not necessarily a bad thing. The lender or broker is going to charge you in some way in order for the loan officer to make money off of the deal. A loan origination fee is a negotiable payment that you pay in cash at closing. Often, the loan origination fee gives you a better interest rate. If you plan on staying in the home for a long time, the lower rate is worth paying the points.

Cons of Origination Fees

The negative side of points is the additional costs at closing. If you are short on cash, this can be a real difficulty. Rate shopping when applying for a mortgage or a refinance is important to avoid these fees. Find the lowest interest rate with the lowest origination fee and you are getting the best deal. Be sure the good faith estimate reflects the fees the lender promised.